Business news 22 September 2023
James Salmon, Operations Director.
BoE leaves rates on hold after inflation drops lower. Rising number of Britons worried about personal finances. And more business news that we thought would interest our members.
BoE leaves rates on hold after inflation drops lower
The Bank of England held interest rates at 5.25% on Thursday after figures on Wednesday showed an unexpected fall in inflation last month.
Bank governor Andrew Bailey said inflation had been falling over recent months and he expected it to continue to do so, adding that there were increasing signs that higher rates were starting to hurt the UK economy. The decision brings an end to almost two years of rising borrowing costs. The BoE did not rule out further rises should wage growth remain high and services inflation remain sticky; oil prices would also be factored in.
But the decision was split with 4 wanting a rate rise to combat wage growth and Bailey having to cast the deciding vote.
But economists doubt the data will warrant a further rise and believe the current cycle has reached its peak. Despite this, “monetary policy will remain restrictive for some time,” predicts KPMG’s chief economist Yael Selfin.
Sterling fell to its lowest level in six months on the news and bond yields rallied – two-year gilts dropping to a three-month low of 4.6% while 10-year gilts yields shed 0.85 percentage points to 4.29%, the weakest since July.
Rising number of Britons worried about personal finances
A recent survey conducted by Nationwide Building Society reveals that a growing number of Britons are worried about their personal finances and their ability to cover basic expenses.
The survey found that 32% of respondents have £100 or less in their bank account at the end of each month, while 9% have no money left at all. The percentage of people concerned about paying for essentials has risen to 69%, up from 57% in July and 62% in August.
Mark Nalder, payments strategy and performance director at Nationwide Building Society, said: “Money worries have peaked this year, which is perhaps not a surprise after many people juggled the expectation to spend during the summer with continued high living costs. As we enter the autumn, households will hope for some respite before the return of colder weather and the need to heat homes once again.”
House price growth falls
Data from the Office for National Statistics (ONS) reveals that house prices in July were only 0.6% higher than the previous year, down from a 1.9% increase in June. This is the weakest reading since September 2012. The average UK house price in July was £290,000, £2,000 more than the previous year but £2,000 below the record set in November.
The ONS data shows that prices are falling fastest in Wales, with house values 0.1% lower in July than a year earlier, while annual price growth in Scotland also slowed to 0.1%. Meanwhile in England, prices increased by 0.6% in the 12 months to July, with London being the weakest-performing regional market. However, it has been overtaken by the southwest, where prices fell 1%.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “Some potential buyers might be emboldened by the recovery in their real incomes in the second half of the year, as wages rise more quickly than prices. But consumers’ confidence is still very weak by past standards and expectations of further house price falls remain entrenched.”
Higher tax income and fall in inflation drive down public borrowing
Figures from the Office for National Statistics (ONS) in August showed that monthly public sector borrowing came in at £11.6bn, below the £13bn forecast by the Office for Budget Responsibility and just above the £11.1bn expected by economists. It means that total borrowing in the financial year starting in April is now £11.4bn lower than the OBR forecasted in March at £69.6bn.
A rise in VAT and income tax receipts – up nearly £3bn on the same month last year – helped to bring up total monthly tax receipts to £57.6bn while falling inflation has reduced the Treasury’s debt servicing bill. Treasury ministers hope the gradual improve in public finances will provide the Chancellor with the opportunity to announce tax cuts in the spring budget next year.
Michal Stelmach, senior economist at KPMG UK said the Government faces “a trade-off between higher taxes or lower spending”. Mr Stelmach added: “We expect public sector net borrowing to reach around £120bn in 2023-24. This would be the lowest level since 2019-20, although it would still amount to 4.6% of GDP, compared to the Government’s medium-term target of 3% according to the current fiscal rules.”
Debt costs make tax cuts almost impossible, says Hunt
The Chancellor is under pressure to reduce the tax burden in the upcoming Autumn Statement after stronger-than-expected tax revenues boosted the public finances. The latest public finances data came as the Bank of England put interest rate hikes on pause, But Jeremy Hunt said tax cuts would be “virtually impossible” because high debt interest payments left him little room for giveaways. “All I would say is, if we do want those long-term debt costs to come down, then we need to really stick to this plan to get inflation down, get interest rates down.”
Liz Truss, the former prime minister, is among those on the Tory Right calling for the Government to cut taxes ahead of the Autumn Statement. However, Carl Emmerson, deputy director of the Institute for Fiscal Studies said the improvement in the public finances was too slim to justify a permanent tax cut of any size.
Treasury faces £3bn bill for bond losses
Alongside the decision on interest rates, the Bank of England’s Monetary Policy Committee also voted to step up the speed of bond sales on Thursday, from £80bn a year to £100bn over the next 12 months. While the sales will reduce the near £760bn of gilts on the Bank’s balance sheet, they are expected to precipitate a loss of about 14% on the purchase price of the bonds. “If we apply that to the extra £20bn of sales, the Government will have to compensate the Bank by around £3bn,” Martin Beck, the EY Item Club’s chief economic adviser, said.
Landlords increasingly buying property via limited companies to cut tax bills
Landlords in England and Wales are increasingly purchasing buy-to-let properties through limited companies to reduce their tax bills.
According to estate agent Hamptons, 74% of all buy-to-let purchases this year have been made via a limited company, up from 68% last year and 41% in 2015. The rise in corporate ownership is attributed to tax changes introduced by former Chancellor George Osborne in 2016. Previously, landlords could deduct mortgage expenses from rental income to reduce their tax bill, but this was phased out and replaced with a tax credit. Limited company ownership also offers other tax savings. Experts predict that the trend of landlords incorporating their properties will continue, although the growth rate has slowed in 2023.
Around 12% of rented homes in England and Wales are currently held in a company structure.
Fox Corp
Rupert Murdoch has decided to step down as chairman of Fox Corp. and News Corp. leaving his son, Lachlan Murdoch, in charge of the family’s cable TV and newspaper companies around two troubled industries. The younger Murdoch has made some shrewd business decisions, including the purchase of the streaming service Tubi for $440 million in 2020, which looks like a winner. But Fox’s broadcast network and cable news outlet continue to lose viewers and the newspaper industry is challenging. In a memo to employees, Mr Murdoch wrote that the “time is right for me to take on different roles”.
Apple
Apple’s latest iPhones and watches go on sale today, a test of whether a new smartphone design and modest smartwatch changes can help return the company to growth.
Chevron
Chevron has struck a deal with Australian workers at its natural gas plants, easing worries on the global gas market.
Microsoft & Activision
The merger looks set to get regulatory approval from the UK’s CMA on the second attempt, according to those in the know.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
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Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.